Looking for sharp selloff on short term basis...but no longer bearish for IT and LT...we will get some bad news soon(Iran, Euro CDS probs, etc) and this will lead to sharp selloff...but selloff will be fast and sharp and most wont be positioned for it as it will happen fairly quickly.

But after selloff, odds now favor a run at the all time highs in Dow and SPX...dont see a significant selloff until summer...jmho.

Supply now a closed-system. Demand will drive the price now, we shall see what happens. Gold, Bonds, Equities and Oil all trading up atm. Strong sell-signal. Morgan Stanley released client statement speculating a double-digit drop in the indexes that correlates with past historic performance in such scenarios.

Mact, What levels are you looking at for the sell-off? I'm thinking a double-digit drop in the indexes. 1260 (7% pull back) back to 200 dma for a conservative est, but 10%+ drop is viable near low 1200's.

With Greece priced in, I'm guessing that news of Iran/Syria will trigger the sell-off.
My indicators have concurred that the market has been overbought...but it's strange to see VIX not behave the way I expected...

Give it a good read. In it he believes what we see in 2012 will be the pattern we see for the next 10 years. His outlook is the end of the continuous debt-borrowing of the US. He compares it to the only applicable insistence in history where they occurred: 1930's US Depression, and the Japanese's 20 years of recession.

Quote:

"Looking back at 2011, there was a multitude of significant events to interest historians, financial or otherwise. For us, the most important development for investors has been confirmation that we have reached the end of the debt supercycle in developed markets. In Europe, we can support this hypothesis by noting the sharp deterioration in GDP growth and growing stress in the majority of government bond markets. While these signposts aren’t necessarily apparent in the US, the loss of its AAA rating over the summer is likely to be a precursor to further developments over the next couple of years. Of course, the ending of a debt supercycle – and the consequences for investors – play out over a number of years."

It also details this: A decline in living standards for the next decade.

Quote:

As consumers experience declining living standards for the first time in a decade, we can expect strikes, unrest and political instability.

For investors, the ramifications of this process are likely to be:

1) more social protests and economic dislocations, such as strike action;

2) increased political turnover as the electorate churns its politicians on a regular basis in the hope of protecting its living standards;

3) an increase in ‘populist’ policies from governments as they aim to align themselves with the wider electorate;

4) Higher taxes – Exhibit 19 shows how corporate tax rates have been falling for the past 30 years, while Exhibit 20 shows how the marginal top rate of US income tax rose from 30 per cent to 90 per cent in the decades post the Great Depression of the 1930s.

Here's also a copy of the client memo:

Quote:

From MS:

Breadth of positive returns across asset classes is rare …

Reading the January version of our global cross-asset strategy team’s excellent ‘Global In The Flow’, it struck us just how unusual performance trends were last month. While we’re all aware that we’ve just witnessed the best start to the year in equities since 1994, what was more interesting to us was the sheer breadth of positive performance across a wide array of assets. Effectively, the only major asset to fall in value in January was the dollar, and the only other laggards we could see were corn, coffee, coal and natural gas.

… and has often preceded equity market corrections

Unfortunately, the report in question hasn’t been in existence long enough for us to see just how rare such a breadth of positive performance is. So we have screened the past five years to identify periods of coinciding monthly price appreciation in the S&P, Treasuries, Oil and Gold. As shown in Exhibit 1, January 2012 was only the fifth month in the past five years when all four of these major asset classes have risen in unison. More interesting, on three of these four prior occasions that month proved to be a significant peak in equities and was followed by a substantial double-digit decline.

The traditional relationship between equities, treasuries and gold has broken down in recent months

While this analysis doesn’t guarantee that the market is about to suffer a reversal, it probably does reflect an abundance of liquidity plus rising investor optimism that this liquidity can lift asset prices across the board. Exhibit 3 and Exhibit 4 chart the longer-term performance of equities relative to USTs and to gold, and both clearly show a breakdown in the relationship in recent months. Of course, it is possible this gap can close through either falls in stocks or declines in the other assets, but we think it is unlikely this disconnect will continue for very long.

We see the breadth of recent strong performance as a warning sign

While we believe Exhibit 1 is a powerful argument to position for a market pullback, investors should note that this rule-of-thumb was less compelling in prior years. For example, although it gave correct sell signals in June 2000 and August 2002, it also gave a number of false sell signals during 2003 and at the end of 2004, as shown in Exhibit 2. We believe the macro environment going forward is more akin to the last five years than the preceding decade, and hence consider this signal is an important warning sign; however, we acknowledge that others may take a different view.

Speculators are bullish on equities, bonds and oil …

In seeking corroborating evidence to support the rule-of-thumb suggested by Exhibit 1, we have analysed CFTC positioning across similar asset classes. Exhibit 5 plots CFTC net speculative longs as a % of open interest for the NASDAQ (historically this metric has been a good predicator of European equity performance), US treasuries and the oil price. Within the chart the grey shading indicates areas when investors were net long all three asset classes based on a rolling 3-month moving average basis. To illustrate its efficacy for stocks Exhibit 6 then shows the S&P and MSCI Europe with the same periods again shaded grey.

… which has provided strong sell signals over the last decade

If anything, we think Exhibit 6 suggests the CFTC analysis is even more powerful than that shown in Exhibit 1, as there do not appear to be any false sell signals (although it was a little early at the tail end of 2010) even when we take the analysis back to 1999. Further, Exhibit 7 details some standard performance analysis around this data – for example, since July 1999 the average 6-month return from MSCI Europe has been 0% and the probability the market rises (hit ratio) is 54%. However, when we measure performance from periods when net longs were present across the three asset classes, we find the average subsequent 6-month return was -6.6% with a hit ratio of just 19%.

Supply now a closed-system. Demand will drive the price now, we shall see what happens. Gold, Bonds, Equities and Oil all trading up atm. Strong sell-signal. Morgan Stanley released client statement speculating a double-digit drop in the indexes that correlates with past historic performance in such scenarios.

Mact, What levels are you looking at for the sell-off? I'm thinking a double-digit drop in the indexes. 1260 (7% pull back) back to 200 dma for a conservative est, but 10%+ drop is viable near low 1200's.

Tread carefully and be careful at shorting at the first signs of a top. As you can see in the picture below, market tends to try once more for a second high before actually dropping down significantly.

Looking for sharp selloff on short term basis...but no longer bearish for IT and LT...we will get some bad news soon(Iran, Euro CDS probs, etc) and this will lead to sharp selloff...but selloff will be fast and sharp and most wont be positioned for it as it will happen fairly quickly.

But after selloff, odds now favor a run at the all time highs in Dow and SPX...dont see a significant selloff until summer...jmho.

I had a shit load of $135 SPY puts on Friday and sold them before the market closed Was stupid for doing so and regret selling them now. On Friday there was a ton of March SPY puts being bought. The $135 March SPY puts were being bought up in huge numbers on Friday. I reckon that on Monday we see a good drop. I am guessing a 2% drop. Let's see what happens on Monday.

ECRI came out last week, reaffirmed their recession call on the US. Their track record has been 100% so far. It was a 6 month call made in August. Meaning it's due March/April. They are calling for contraction in US growth.

We just formed a new high.. Is everybody still bearish or does the trend continue?

Still bearish, probably more bearish now than usually.

It looks like the bulls are still running, and I'm thoroughly impressed by how much overshot has happened on their part. Never thought we'd be challenging these levels right off the October bottoms, so good part on them. However, I'm more bearish now as the longer and straighter we go in a line upwards, the deeper the fall down. It's sort of like falling from the first floor, except now we're on tenth.

Conservatively, I think 1250-1260 is where we're going to correct to in the ST. Thats just, again, a healthy correction to the 200dma. Any factor of bad news coming in, and I really think we'll be retesting some ugly lows. There are some out there who are calling for 1000 SPX by end of Q1 (April). Seems far-fetched right now saying those things from 13,000 DOW, but then again it was far-fetched imagining 13,000 DOW just a few months ago.

Someone purchased 24,000 SPX weekly puts with strike point at 1150. That's a 20% decline from current levels. The index needs to drop 10% to even make profit on this trade. The put expires next Friday, so, whichever institution just made that bet better hope for a huge 10% decline in 7 days, or lose that capital. Interesting to see that up there. Not sure what to make of such a put-play.

Someone purchased 24,000 SPX weekly puts with strike point at 1150. That's a 20% decline from current levels. The index needs to drop 10% to even make profit on this trade. The put expires next Friday, so, whichever institution just made that bet better hope for a huge 10% decline in 7 days, or lose that capital. Interesting to see that up there. Not sure what to make of such a put-play.

Where did you see this purchase? 24,000 SPY puts is not much.. When did you see this trade happen? Do you have a screenshot of this trade

No more monetary stimulus anymore boys. No more LTRO (draghi said it was the last), twist is a failure (why LTRO had to come in to pump markets back up), and Benny hasnt hinted towards QE3 yet (which i believe he's holding off on until a serious correction. He wont be announcing that until we're in deep morass, as when all QE's are released).

Look up what happens at the end of each QE. Also, everyone here should familiarize themselves with the immediate drawbacks of LTRO. Though the loans are 3-years displaced at low interest, there are also immediate risks alongside it's provided benefits.

I am assuming that person bought them at $.05 each which is not a lot of money. Most likely figured if he asked $.10 and got people to join in on the ask he would double his money.. There was little to no activity on those puts.

No more monetary stimulus anymore boys. No more LTRO (draghi said it was the last), twist is a failure (why LTRO had to come in to pump markets back up), and Benny hasnt hinted towards QE3 yet (which i believe he's holding off on until a serious correction. He wont be announcing that until we're in deep morass, as when all QE's are released).

Look up what happens at the end of each QE. Also, everyone here should familiarize themselves with the immediate drawbacks of LTRO. Though the loans are 3-years displaced at low interest, there are also immediate risks alongside it's provided benefits.

Vanity,

Never mistake fundamentals(economic) with asset prices...its about liquidity and supply-demand...when liquidity runs a plenty, being short is a losing game no matter how crappy the fundamentals truly are.